CESTAT: Rajasthan Sales Tax Subsidy under RIPS 2010 Not includible in Excise Assessable Value

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that sales tax subsidies received under the Rajasthan Investment Promotion Scheme (RIPS) 2010 are not to be included in the assessable value for excise duty purposes. The Tribunal found that the subsidy, used to offset VAT/CST liabilities, did not represent a retention of tax collected from customers or additional consideration. Therefore, no additional excise duty is payable on these subsidies.

Mangalam Cement was eligible for investment and employment subsidies under RIPS. The subsidy, equivalent to a portion of VAT/CST paid, was not received in cash but was credited to the appellant's sales tax account through VAT challans and subsequently used to discharge VAT/CST liability.

The Department had demanded ₹22,37,884 in excise duty, contending that the subsidy represented retention of VAT/CST collected from customers and therefore formed part of the transaction value. The original adjudicating authority dropped the demand, but the Commissioner (Appeals) subsequently confirmed it.

CESTAT relied particularly on its earlier decision in Harit Polytech Pvt. Ltd., followed in K R N Alloys Pvt. Ltd., where it was held that subsidy under the promotional policy does not constitute additional consideration and does not reduce the selling price.

The Tribunal observed that the entire sales tax collected from customers was actually paid and was not retained by the assessee. Payment through VAT 37B challans was therefore treated as actual payment of VAT and the subsidy could not be included in the transaction value under Section 4(3)(d) of the Central Excise Act.

Decision

CESTAT held that the sales tax subsidy received under RIPS 2010 is not includible in the assessable value of the goods. Accordingly, no additional excise duty was payable and no penalty was imposable. The impugned appellate order was set aside and the appeal was allowed with consequential relief.

Key Takeaway: Where the assessee pays the entire VAT/CST collected from customers, a subsidy granted separately under a State industrial promotion scheme does not constitute additional consideration or reduce the selling price and, therefore, cannot be added to the Central Excise assessable value.